Question

1. How much would you be willing to pay today for an investment that pays the following cash flows at the end of each of the next 4 years if your required rate of return is 9% per year?

Period        Cash Flow
0	$0
1	$100
2	$200
3	$300
4	$400

Answer 1

Calculation of Present Value of Future Cashflow

	A	B	C =A*B
Particulars	Cash Flows	Discount Factor @9%	Present Value of Future Cashflow
Year 1	100	0.9174	91.74
Year 2	200	0.8417	168.34
Year 3	300	0.7722	231.66
Year 4	400	0.7084	283.36
Total Present Value of Future Cashflow			775.10

The Total Present Value of Cashflows at the required return of 9% is $ 775.10 so he will be willing to pay an amount of $ 775.10 Today because this is the point of break even.

I would be willing to pay $ 775.10 or less today to have a profit on the Investment.